Tripura High Court Protects Genuine Taxpayers 

Input Tax Credit (ITC) is the backbone of the GST framework. For businesses, it is not an incentive—it is a statutory mechanism to avoid tax cascading. 

Yet, one concern continues to trouble compliant taxpayers: What if the supplier collects GST but does not deposit it with the Government? 

Can a genuine buyer lose ITC despite full compliance? 

In a landmark ruling, the Tripura High Court answered this question decisively in favor of honest taxpayers.

🔹 Stage 1: The Fully Compliant Buyer 

Consider a registered GST taxpayer who: 

✔ Purchases goods from a registered supplier,
✔ Receives a valid tax invoice,
✔ Pays the entire value including GST,
✔ Received the goods,
✔ Files returns correctly and on time.

From a compliance standpoint, all statutory conditions are fulfilled. 

Input Tax Credit is claimed. 

🔹 Stage 2: The Departmental Objection

Unexpectedly, a notice is issued stating: 

“Input Tax Credit is denied because the supplier failed to deposit GST with the Government.” 

The denial is based on Section 16(2)(c) of the CGST Act, which requires tax charged to be actually paid to the Government. 

⚠️ This raises a crucial question: 

Can a purchaser be penalized for a supplier’s default; over which the purchaser has no control? 

🔹 Stage 3: Issue before the High Court 

The Tripura High Court examined the following legal issue: 

Whether ITC can be denied to a bona fide purchaser solely because the supplier failed to remit GST, in the absence of fraud or collusion?

🔹 Stage 4: Key Judicial Observations 

The High Court made several critical observations: 

✔ A buyer has no statutory mechanism to verify whether GST has been deposited by the supplier 
✔ Expecting such verification is unreasonable and impractical 
✔ GST aims to prevent cascading of taxes, not create double taxation 
✔ Denial of ITC in such cases punishes the wrong person 
✔ Invocation of Section 73 confirms no fraud or suppression by the buyer 

The buyer acted in good faith and complied with the law. 

🔹 Stage 5: Reading Section 16(2)(c) reasonably 

The Court clarified: 

✔ Section 16(2)(c) is constitutionally valid;
✔ It cannot be applied mechanically;  

• The Legal Position after this ruling 

✔ ITC cannot be denied to a bona fide buyer; 
✔ ITC can be denied only in cases of fake, collusive, or fraudulent transactions;
✔ Recovery of unpaid tax must be from the defaulting supplier, not the purchaser.

🔹 Stage 6: Final Outcome 

• The ITC denial order was set aside, 
• Input Tax Credit was restored,
• The department was directed to proceed against the supplier for recovery. 

Justice aligned with commercial reality. 

🔹 Conclusion 

The Tripura High Court reinforced a fundamental GST principle: 

Input Tax Credit is a statutory right of a compliant taxpayer, not a privilege that can be withdrawn due to someone else’s failure. 

For downloading full judgment- https://counselvise.com/indirect-tax/judgements/sahil-enterprises-union-of-india.